Annual Financial Report and Circular

RNS Number : 9074E

Cairn Energy PLC

15 April 2014

 

FOR IMMEDIATE RELEASE                                                                                         15 April 2014

CAIRN ENERGY PLC ("Cairn" or "the Company")

Report and Accounts and Circular

The Company's annual report and accounts for the year ended 31 December 2013 (the "Report and Accounts") and a circular (the "Circular") were posted to shareholders today. The Circular contains a notice convening the 2014 Annual General Meeting (the "AGM") and details of the proposed renewal of the existing authority to dispose of the Company's residual interest in Cairn India. The AGM will be held in the Castle Suite of The Caledonian, a Waldorf Astoria Hotel, Princes Street, Edinburgh, EH2 2EQ at 11.00 am on Thursday 15 May 2014.

A copy of the Report and Accounts and Circular have also been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.Hemscott.com/nsm. The Report and Accounts and Circular are also available on the Company's website at www.cairnenergy.com.

Defined terms used in this announcement shall, unless otherwise specifically defined herein, have the same meanings as in the Circular.

Circular - Residual Cairn India Interest Disposal Authority

The Company's residual interest of approximately 10 per cent of Cairn India represents a substantial proportion of the Group's assets and therefore, due to its size, the sale of all, or a substantial part of, the residual interest currently requires shareholder approval under the Listing Rules. At last year's annual general meeting held on 16 May 2013, Shareholders authorised the Board to dispose of all or part of the Company's then residual interest. However, the Company determined that it would not be in the best interests of Shareholders to dispose of or reduce substantially its residual interest in Cairn India during the course of 2013.

As previously announced, Cairn has at present been restricted by the Indian Income Tax Department from selling its shares in Cairn India, however, Cairn believes it is appropriate to retain the flexibility to realise shareholder value from its residual interest in Cairn India in the event that the selling restriction is removed and is therefore seeking to renew the Residual Interest Disposal Authority.

The Board continues to believe that, in order to obtain the best terms when disposing of all or part of its residual shareholding in Cairn India, it needs to be able to sell or agree to sell those shares on normal market terms without the sale being subject to prior approval from Shareholders. The Board is therefore seeking to renew the existing authority from Shareholders for the Company to be able to sell its residual interest in Cairn India at or as close as reasonably possible to the prevailing market price if and when the Company considers it appropriate to make such disposals and provided that the selling restriction is removed.  Shareholder approval is being sought to make disposals via on-market transactions, including participation in any share buy-back by Cairn India.  

The Company only intends to utilise the Residual Interest Disposal Authority where, provided that the selling restriction is removed, it believes that a sale is in the best interests of Shareholders as a whole and in the meantime the Company will continue to benefit from the growth and success of the discoveries in Rajasthan and elsewhere through the retained interest in Cairn India. No decision has been taken as at the date of the document on how the net proceeds of any such sale(s) will be applied.

Provided that the resolution is passed at the Annual General Meeting, the Residual Interest Disposal Authority, unless renewed, will expire on the earlier of 30 June 2015 (the last date on which the Company's annual general meeting for 2015 could be held) or at the end of the Company's annual general meeting for 2015 (prior to that date the Company will assess the necessity and desirability of renewing the authority).

Cairn India is primarily engaged in the business of oil and gas exploration, production, transportation and sale. It is based in India and has a strong institutional shareholder base both within India and internationally. As at 31 December 2013, the fair value of the Company's residual interest in Cairn India was US$1.0 billion (extracted without material adjustment from the Group's audited consolidated financial accounts for the year ended 31 December 2013).

Report and Accounts - Information required by Disclosure and Transparency Rule 6.3.5

The information set out below, which is extracted from the Report and Accounts, is included in this announcement for the sole purpose of complying with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issuers as to how to make annual financial reports public.  It should be read in conjunction with the Company's preliminary results announcement, released on 18 March 2014 (the "Preliminary Results Announcement").  This material is not a substitute for reading the full Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the Report and Accounts.

Directors' responsibility statement

The following statement is extracted from page 74 of the Report and Accounts. This statement is repeated here solely for the purposes of complying with Disclosure and Transparency Rule 6.3.5. This statement relates to and is extracted from the Report and Accounts. It is not connected to the extracted information presented in this announcement or in the Preliminary Results Announcement.

'Directors' Responsibility Statement

The directors are responsible for preparing the annual report, the Directors' Remuneration Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Company and Group for that period. In preparing these financial statements, the directors are required to:-

·      select suitable accounting policies and and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable IFRSs as issued by the IASB and adopted by the European Union have been followed, subject to any material departures disclosed or explained in the financial statements; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will remain in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Directors' Statement Pursuant to the Disclosure and Transparency Rules

Each of the directors, whose names are listed in the Board of Directors section on pages 62 and 63 confirms to the best of their knowledge that:

·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and Company; and

·      the Strategic Review section of this Annual Report (which is cross referred to in the Directors' Report) includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces."

The names of the directors who have given this responsibility statement are:

Sir Bill Gammell (Non-Executive Chairman)

Todd Hunt (Non-Executive Director)

Iain McLaren (Non-Executive Director)

Dr James Buckee (Non-Executive Director)

M. Jacqueline Sheppard QC (Non-Executive Director)

Ian Tyler (Non-Executive Director)

Alexander Berger (Non-Executive Director)

Simon Thomson (Chief Executive)

Dr Mike Watts (Deputy Chief Executive)

Jann Brown (Managing Director & Chief Financial Officer)

Principal risks and uncertainties

The following description of the principal risks and uncertainties is extracted from page 41 of the Report and Accounts. Further detailed information in relation to business risk management at Cairn is included on pages 43 to 49 of the Report and Accounts:-

"Principal Risks and Uncertainties

As described in the Financial Review, as the Group continues its strategy of targeting and realising value for stakeholders from exploration success, the principal risks and uncertainties facing the Group are as follows:-

Lack of exploration success

Once acreage has been secured, the challenge is to discover a hydrocarbon resource in commercial quantities. In 2014, operated wells are due to be drilled in Morocco, Senegal and the Republic of Ireland and four non-operated wells are also anticipated to be drilled in the UK and Norway. The Group continues to actively evaluate a number of potential new exploration and investment opportunities for 2014 and further ahead which are all subject to extensive external and internal peer review.

Health, safety, environment and security incidents

Health, safety, environment and security (HSES) incidents can occur if potential risks are not properly identified and managed. Executing operations safely and securely is the Group's number one priority. To help mitigate HSES risks, a comprehensive CR Management System is embedded throughout the organisation which ensures all HSES risks are identified, evaluated and treated during project screening, planning and execution. In the unlikely event of an incident occurring, robust plans exist to ensure it is managed effectively.

Restriction on ability to sell CIL shareholding

In January 2014, Cairn received a request from the Indian Income Tax Department to provide information regarding a transaction which took place during the fiscal year ended 31 March 2007. The correspondence indicates that this enquiry stems from amendments introduced in the 2012 Indian Finance Act with retrospective effect which seeks to tax prior year transactions. While the interactions with the Indian Income Tax Department continue, Cairn has been restricted from selling its shares in CIL (valued at US$1.0bn as at 31 December 2013). The actions of the Indian Income Tax Department were taken without any prior discussion with Cairn and could not have been anticipated. It is therefore not possible at this stage to predict the course of any future action it might take. The Group will take whatever steps are necessary to protect its interests. This matter is addressed further in the Financial Review on page 39.

Kraken and Catcher development projects not executed on schedule and budget

The Kraken and Catcher development projects are part of the mature basin North Sea portfolio which provides balance to the frontier exploration programme as well as the future cash flow to fund exploration activity. Development projects of this nature can be susceptible to delays and budget increases for a variety of reasons and to mitigate against this, the Group works closely with the partners to support and / or influence key decisions. The Kraken FDP was submitted and received DECC approval in 2013 and the first draft of the Catcher FDP has been submitted to DECC by the operator.

Related party transactions

The following description of related party transactions is extracted from page 138 and 139 of the Report and Accounts:

"7.8 Related Party Transactions

The Company's principal subsidiaries are listed in Appendix 2. The following table provides the Company's balances which are outstanding with subsidiary companies at the Balance Sheet date:

	2013		2012
	US$m		US$m
Amounts owed from subsidiary undertakings	307.8		1,059.8
Amounts owed to subsidiary undertakings	(4.2)		(21)
	303.6		1,038.8

The amounts outstanding are unsecured, repayable on demand and will be settled in cash. Interest, where charged, is at market rates. No guarantees have been given.

During the year the Company made a capital contribution to Capricorn Oil Limited (a subsidiary) of US$1,059.8m which reduced amounts owed to the Company by Capricorn Oil Limited.

A further $9.7m (2012: US$6.7m) was recognised as additions to investments relating to Capricorn Oil Group for the award of share options of the Company to employees of Capricorn Energy Limited (a principal subsidiary of Capricorn Oil Limited).

The following table provides the Company's transactions with subsidiary companies recorded in the loss (2012: profit) for the year:

	2013		2012
	US$m		US$m
Amounts invoiced to subsidiaries	8.4		8.7
Amounts invoiced by subsidiaries	2.2		6.4
Dividend received from subsidiary	57.7		1,313.6

Directors Remuneration

The remuneration of the directors of the Company is set out below. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration Report on pages 91 to 97.

	2013		2012
	US$m		US$m
Emoluments	4.8		5.1
	4.8		5.1

Directors' emoluments and remuneration of key management personnel

The following description of directors' emoluments and remuneration of key management personnel is extracted from page 130 of the Report and Accounts:

"5.5 Directors'Emoluments and Remuneration of Key Management Personnel

Details of each director's remuneration, pension entitlements, share options and awards pursuant to the LTIP are set out in the Directors' Remuneration Report on pages 81 to 98. Directors' remuneration, their pension entitlements, and any share awards vested during the year is provided in aggregate in section 7.8.

Remuneration of key management personnel

The remuneration of the directors of the Company and of the members of the Management and Corporate teams who are the key management personnel of the Group is set out below in aggregate.

	2013		2012
Company	US$m		US$m
Short-term employee benefits	10.2		10.0
Post-employment benefits	0.6		0.6
Share-based payments	5.3		0.7
	16.1		11.3

In addition employer's national insurance contributions for key management personnel in respect of short-term employee benefits were $1.3m (2012: US$0.6m).

Share-based payments represent the cost to the Group of key management personnel's participation in the Company's share schemes, measured under IFRS 2.

Forward looking statements

This announcement contains or may contain forward-looking statements regarding Cairn, our corporate plans, future financial condition, future results of operations, future business plans and strategies. All such forward-looking statements are based on our management's assumptions and beliefs in the light of information available to them at this time. These forward-looking statements are, by their nature, subject to significant risks and uncertainties and actual results, performance and achievements may be materially different from those expressed in such statements. Factors that may cause actual results, performance or achievements to differ from expectations include, but are not limited to, regulatory changes, future levels of industry product supply, demand and pricing, weather and weather related impacts, wars and acts of terrorism, development and use of technology, acts of competitors and other changes to business conditions. Cairn undertakes no obligation to revise any such forward-looking statements to reflect any changes in Cairn's expectations with regard thereto or any change in circumstances or events after the date hereof.

 

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